Wed 29th Jan 2025 - Exclusive: Pizza Hut Restaurants UK business acquired out of administration for £10m Exclusive – Pizza Hut Restaurants UK business acquired out of administration for £10m: Private equity firm Directional Capital paid £10m to acquire Heart With Smart (HWS), which manages the operations of the UK Pizza Hut dine-in restaurant business, via a pre-pack deal, Propel has learned. The deal, completed earlier this month, saw Directional Capital, which also owns the company that operates Pizza Hut restaurants across Sweden and Denmark, acquire 139 Pizza Hut Restaurants, and led to the closure of one Pizza Hut site, and three Itsu franchise sites. The transaction also safeguarded the jobs of more than 3,000 employees who transferred to new vehicle DC London Pie, owned by Directional Capital, which also owns the company that operates Pizza Hut restaurants across Sweden and Denmark. Before the deal, the largest shareholders in the business were PGIM Private Capital (PGIM) through its mezzanine lending fund, Pricoa Capital Partners (PCP), the junior secured lender, with total shareholding of 32.5% and Jens Hofma, group chief executive, with a shareholding of 34.8%. PGIM held a financial interest in the group since April 2018 when it provided a multi tranche debt and equity package to support the acquisition of the business’s share capital from the previous majority shareholder, Rutland Partners. The group’s debt facilities were refinanced in April 2024 and included the provision of a senior secured £5m revolving credit facility (RCF) to the existing senior term loan facility of £27.2m. Across the operating group, the secured lenders were owed approximately £39.5m at the date of the appointment of joint administrators Interpath on 16 January 2025. PCP also provide a guarantee under letters of credit for the group’s utility contracts with Engie. These letters provided a credit limit of £5m and the estimated accrued utility balance totalled £3.6m. At the time of Interpath’s appointment, HWS also owed arrears to the franchisor (Yum! Brands) in relation to aged royalty and brand investment payments totalling £8.3m. In regards to the lead up to the administration, the administrators stated: “HWS has over recent financial periods faced a significant decline in revenue, driven by a range of factors including a reduced estate portfolio and a challenging post-pandemic trading environment characterised by high inflation driving suppressed consumer demand and the increasing rise of delivery aggregators and quick service restaurants taking market share away from the traditional casual dining operators. Revenue of £211m in FY19 prior to the covid-19 pandemic fell to £164.4m and £165.1m in FY22 and FY23 respectively. The group generated a net profit of £1.8m in FY22 and a net loss after tax of £13m in FY23. In April 2024, in lieu of these financial challenges and pressures on liquidity, the group refinanced its debt facilities, which included partial debt equitisation, extension of existing debt terms and additional capital through the RCF. However, trading performance since the refinance continued to decline with continued weak macroeconomic conditions and an increasingly competitive trading environment led to FY24 revenue of £145.6m, net Ebitda of £300,000 and a net loss of £25.9m. As such, the group was forecasting a funding requirement in January 2025. The purchaser’s offer of £10m was for the majority of the business and assets of the operating group including goodwill, its interest in 143 leasehold properties (including the head office), stock, equipment, business records and contracts. Certain key assets were excluded from the transaction including three leases, cash at bank, cash in transit, deposits and prepayments. The purchaser has been granted a nine-month licence-to-occupy over the 143 leasehold premises by the joint administrators.” Four parties submitted indicative offers or expressions of interest for HWS, but Interpath said that the decision to go with Directional Capital was primarily based on the “combination of overall value and return to the creditors as a whole, the franchisors support and the deliverability of the offer presented in the limited time frame available”. Pizza Hut Restaurants UK features in the Propel 500 report, an unparalleled resource that profiles the UK’s leading hospitality operators ranked by turnover – which is available now. This comprehensive report provides more than 90,000 words of analysis, delving into company histories, leadership structures, site numbers and financial performance, making it an essential resource for industry professionals. A list of the operators included can be discovered now by visiting the Propel 500 page on Propel’s website. The guide is delivered in two parts: an introductory PDF, featuring deep dives into the top 25 companies and 6,500 words of insight from Propel’s expert writers, and a fully searchable Excel sheet, offering easy access to all the data. Key highlights include Mark Wingett’s exploration of mergers and acquisitions shaping the Top 500’s future, Tim Street’s view of the UK’s franchise market, and Phil Pemberton’s insights into experiential leisure as a hospitality cornerstone. Katherine Doggrell examines developments in UK hotels, while Mark Bentley, business development director at HDI, identifies emerging growth sectors, and Maria Vanifatova, founder of Meaningful Vision, analyses trends in QSRs. Propel 500 is available now for £595 plus VAT. Existing Premium Club members can purchase it for £395 plus VAT. Premium Club members will receive the report for free on Friday, 28 February at 9am. Order the Propel 500 report today by emailing: kai.kirkman@propelinfo.com.